An AmEx Appeal Likely as Network, DoJ Still Far Apart on Anti-Steering Rules

American Express Co. and the U.S. Department of Justice submitted proposals Monday for rules changes conforming to a federal judge’s ruling that AmEx’s current ban on merchants steering customers to cheaper forms of payment violates antitrust law. The proposals show the two sides remain far apart, and AmEx reiterated that it plans to appeal.

Following a seven-week bench trial last summer, Judge Nicholas G. Garaufis of U.S. District Court in Brooklyn N.Y., on Feb. 19 ruled in favor of the allegations in a 2010 lawsuit by the DoJ, joined by 17 state attorneys general, that AmEx’s anti-steering rules, or non-discrimination provisions (NDPs), violate the Sherman Act, one of the pillars of U.S. antitrust law.

The judge gave the parties until Monday to submit proposed judgments, or remedies, that would change the rules with the least damage to AmEx’s business model. If the parties can’t find agree on the major points, Garaufis will impose his own remedy.

AmEx traditionally has had the highest discount rates among the four major U.S. general-purpose payment networks, but the New York City-based firm says it delivers a higher-spending customer to merchants. AmEx chief executive Kenneth I. Chenault testified at trial that if the NDPs are eliminated, AmEx “will not survive as a company”—a statement many observers discounted.

In lengthy court documents that include critiques by each side of the other’s proposals, the opposing parties found some common ground. For the most part, however, they remain far apart on a remedy. In one document, the DoJ said its proposed judgment “should be interpreted to promote such [steering] efforts and not limit them.” Thus, AmEx should not prevent a merchant from offering discounts or rebates on products and services for using a payment form other than the one the customer initially presented, the DoJ said.

In another document, the DoJ said, “AmEx would restrict and punish steering to the point that merchants might find no workable ways to reduce their acceptance costs. AmEx’s proposal would empower it effectively to re-impose restrictions that the court has found unlawful.” The DoJ’s press office did not respond to a Digital Transactions News request for comment.

For its part, AmEx said it should have some ability to constrain steering, and that the DoJ’s solution would go beyond the relief the court said was necessary to address the competitive harm AmEx could suffer from unrestricted steering. AmEx’s proposed constraints include authority to prevent what it calls “mischaracterizing its network and products,” notice from merchants that intend to steer, and the right to terminate merchants that steer. The company also wants the right to negotiate individual steering agreements.

“Our remedy is consistent with the court’s decision—and the government’’ entire theory of competitive effects—that merchants need the ability to steer to lower-cost cards to enhance competition,” the company said in an emailed statement to Digital Transactions News. “The [DoJ] remedy would subject American Express to unnecessary notice and compliance protocols, in addition to not allowing American Express to terminate a merchant for steering.”

The statement also said, as AmEx first said when Garaufis released his decision, that the company plans to file an appeal because it disagrees with the basic ruling. In a reference to Visa Inc. and MasterCard Inc., AmEx said “the court’s ruling will not provide any benefit to consumers and will, in fact, harm competition by further entrenching the two dominant networks. We continue to believe that the Department of Justice’s arguments are flawed and believe we should prevail on appeal.”

The DoJ sued Visa and MasterCard over their anti-steering rules at the same time it sued AmEx in 2010, but the bank card networks immediately settled and agreed to change their disputed rules.

The fight with the DoJ comes at a time when AmEx is struggling to recover from other setbacks, especially the impending loss of its big cobranded card program and exclusive credit card acceptance deal with Costco Wholesale Corp.